Tag Archives: Undocumented Worker Tax Contributions

Much has been said in recent presidential election debates on the perceived threats of ‘illegal immigration’ on the United States economy. The political discourse has even gone from hot to heated with phrases like “Who’s going to pay for the wall? Mexico!” entering the 2016 presidential race lexicon. But do the numbers and empirical data support the assessment that the economic impact of undocumented immigrants on the United States has been negative? In a recent study, The Institute on Taxation and Economic Policy (ITEP), a public policy research institute based in Washington, DC approached this question from a different vantage point – Tax Contributions.

The report, Undocumented Immigrants’ State & Local Tax Contributions, shed some light on an overlooked outcome of the undocumented workforce on the US economy – increased tax revenue. The study found that “Like other people living and working in the United States,” undocumented immigrants “pay sales and excise taxes when they purchase goods and services (for example, on utilities, clothing and gasoline). They pay property taxes directly on their homes or indirectly as renters. Many undocumented immigrants also pay state income taxes. The best evidence suggests that at least 50 percent of undocumented immigrant households currently file income tax returns using Individual Tax Identification Numbers (ITINs), and many who do not file income tax returns still have taxes deducted from their paychecks.” That’s right. As it turns out, there’s a big secret in the US undocumented immigrant community that never seems to enter the public political discourse: undocumented workers pay taxes. Given that current population estimates of undocumented immigrants in the US is at or around 11.3 million (Pew Research Center 2015), it would seem their overall annual contributions might instead glean some overlooked outcomes of the undocumented community on the US economy.

If undocumented workers contribute to state and local taxes through varied revenue streams, how then does this affect the broader national economy? The recent ITEP study provides some key findings that might provide more insight:

— Undocumented immigrants contribute significantly to state and local taxes, collectively paying an estimated $11.64 billion a year. Contributions range from almost $2.2 million in Montana with an estimated undocumented population of 4,000 to more than $3.1 billion in California, home to more than 3 million undocumented immigrants.

— Undocumented immigrants nationwide pay on average an estimated 8 percent of their incomes in state and local taxes (this is their effective state and local tax rate). To put this in perspective, the top 1 percent of taxpayers pay an average nationwide effective tax rate of just 5.4 percent. Granting legal status to all undocumented immigrants in the United States as part of a comprehensive immigration reform and allowing them to work legally would increase their state and local tax contributions by an estimated $2.1 billion a year. Their nationwide effective state and local tax rate would increase to 8.6 percent.

— The state and local tax contributions of the undocumented immigrants who could be directly impacted by President Obama’s 2012 and 2014 executive actions would increase by an estimated $805 million a year once fully in place. The effective state and local tax rate for this population would increase from 8.1 to 8.6 percent. State and local revenue gains from the executive actions are smaller than gains from granting legal status to all undocumented immigrants because the actions (if upheld) would only affect around 46 percent of the undocumented population and the actions do not grant a full pathway to lawful permanent residence or citizenship.

It is clear that the undocumented community has a significant impact on state and local tax revenue. But will the $11.64 billion overall tax contribution of this community be enough to direct policy-makers to create a more inclusive framework of immigration reform that further bolsters state and local economies? Both sides of the aisle should at the very least give the issue further consideration.